Are Chinese Stocks Crashing? What Does this Tell U.S. About Where We Are Heading?

Written by Michael Clark

“NOTHING COULD BE FINER THAT TO BE INVESTING IN AMERICAN CORPORATIONS IN CAROLINA IN THE MOR-OR-OR-NING…!”

I relax with my cup of coffee. Everything is fine again. The world seems wonderful. The American Economy is pumping out positive number after positive number: jobs, spending, retail spending…it all just gets better and better. The bulls are in the driver’s seat, where they belong (warning the bears not to spoil everything with their negativity!). A good knock up on the side of the head may be in order for those perma-bears who ALWAYS focus on the shadow side.

I was gloating. I was long stocks and feeling pretty good about it. Up over 30% in a few months. Netflix had just doubled for me. Maybe it was time to buy more. I scan the headlines: “S&P Might Gain Another 20%…” Jeeze: I better buy some more Netflix. Not that Netflix is going to power the American Empire back to global dominance but is the New America going to be driven by the tech giants to the heights again?

Woops. Apple was lower again. I’m shorting Facebook. Then I made a huge mistake — in terms of my peace of mind. I looked at Chinese stocks and indexes. GASP!

Is China Crashing? Ok, my first look was at the Chinese banks: the BIG BANKS. Too Big to Fail! Egad! They looked horrible in the charts:

Agricultural Bank of China seemed to be in a dead-fall.

Note: The red lines in the charts is for a proprietary momentum oscilator that I call M5DIFF% which ranges between +500 and -500. Generally above zero is bullish and below is bearish. The oscilator tends to move coincidently or in advance of prices. The lower pane for each chart gives the general price trend.

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Ok. Then I looked at Industrial and Commercial Bank of China; then China Merchants Bank; then Bank of China — the last one was touching support. Perhaps support would hold. I do not own any of these; but I was assured by ‘China Experts’ that these were rock-solid Chinese stocks.

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Click to enlarge

Click to enlarge

Was this just the Chinese financials that were in trouble? No. The Shanghai Index looked bad. So did the Hang Sang. Both seemed to be entering the ‘free fall’ zone. Note in the charts how the red line in the top pane — M5Diff% — when it begins a free fall, stock prices follow.

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Click to enlarge

I looked at one of my favorite ETF’s. FXP, Short FTSE China Index. Was it time to short China? Incredibly, it seemed like it was. I thought the bulls were in control; and now this. The FXI, China 25 Index, looked horrible — the long trade looked horrible.